Essays on Threat of Employee Mobility and Firm Countervailing Strategies

Inevitable disclosure doctrine (IDD) is an employer friendly legal measure in the United States of America that aids employers in preventing employees from switching jobs to competitors if they would inevitably disclose trade secrets. Twenty six states adopted IDD by the late 1990s. However, several states recognized the importance of employee mobility and rejected IDD in the past two decades. This essay relies on the staggered nature of these rejections and draws on the knowledge based view of the firm to examine the effect of IDD rejection on three crucial phenomena. First, the knowledge leakage from employee mobility (enabled by IDD rejection) leads to an increase in competitive threats faced by firms. Second, the effect is amplified for firms with higher marketing investments, whereas R&D investments have no moderating impact. Third, firms respond to increased competitive threats by obtaining more process and product patents. Additional analysis shows that the business process and product patents mitigate the competitive threats faced by the firms.

CEO succession is one of the most uncertain times in the life of an organization. There is considerable research in predicting if a new CEO probation period is successful (CEO-board chair consolidation), or failure (e.g., early CEO dismissal). However, there is limited theoretical and empirical work on understanding what affects the duration of the CEO probation period. This essay draws on research in human capital and employee mobility to argue that boards extend the CEO probation periods (withhold the chair title from the CEO longer) when there is higher likelihood of CEO turnover to mitigate the turmoil and cost associated with frequent CEO succession. I rely on a natural experiment where U.S. state courts repealed Inevitable Disclosure Doctrine (IDD) which exogenously increased employee (CEO) mobility. To test the hypothesis, I use survival analysis and a sample of S&P 1500 firms from 2007-2019. I find that IDD rejection leads to an increase in the time to board chair of the CEO. Consistent with theory, I find that this relationship weakens with industry concentration and strengthens with firm performance, factors that affect the CEO’s likelihood of leaving for a competitor.